Standing Committee C

[Mr. Peter Atkinson in the Chair]

Retirement Income Reform Bill

Edward Garnier: I beg to move,
That, if proceedings on the Retirement Income Reform Bill are not completed at this day's sitting, the Committee do adjourn to a date and time to be fixed by the Chairman.
 I have deliberately constructed the sittings motion in that way because it is my earnest hope that the Committee will complete its deliberations today. Unless someone particularly wants to prolong them, I trust that we shall be done and dusted later this afternoon. 
 Before I discuss the Bill and the amendments, I want to thank you, Mr. Atkinson, for taking the Chair. I trust that you will find our deliberations interesting and efficiently conducted. I also thank the Economic Secretary for taking the place of the Financial Secretary, who is, I believe, on maternity leave. Parts of the Bill deal with gender neutrality, and I look forward to hearing whether the Government are interested in gender equality in the provision of annuities. I am reasonably sure that the matter is of interest to all members of the Committee. 
 I thank members of the Labour party who are not members of the Government for taking part in our proceedings. People have become interested in pensions for many different reasons, although the Bill obviously deals with only a small part of the country's huge pensions crisis. None the less, all of us can, irrespective of our party political allegiances, share the aim of improving choice in pension provision. We can give those who are about to retire and those who will retire in the decades ahead greater independence in providing for their retirement, at a time when it is becoming increasingly difficult for people to be sure of their pensions. 
 I thank my hon. Friend the Member for Arundel and South Downs (Mr. Flight), who, with the Minister, has been battling through the Finance Bill for several weeks on the Floor of the House and in Committee. I am grateful to him for giving up the time to assist us with our deliberations. I also thank my other hon. Friends for their assistance today. 
 The Bill has all-party support and it achieved a majority of 101 in the Second Reading vote on 7 March. It therefore has the support of the House of Commons. The Government told us that the Hunting Bill had the support of the House and that it should not, therefore, be delayed on its way to the House of Lords. I ask the Committee to bear that in mind when we consider the Government's amendments. 
 As I said, the Bill has all-party support, and there are some long-standing friends of the pensions issue on the Labour Benches today. The right hon. Member for Birkenhead (Mr. Field) cannot be here, but his support is hugely welcome, as is that of other Labour Members 
 of the Committee. I thank the hon. Members for Twickenham (Dr. Cable) and for Sheffield, Hallam (Mr. Allan), who are Liberal Democrat party members, for being here today. Their presence demonstrates that the Bill has third-party support. 
 My hon. Friends and I have tabled only two amendments, which can be dealt with in a matter of minutes. I trust that we can discuss the Government amendments in a warm-hearted and constructive way, although it is my submission that they are designed to destroy the Bill by removing its building bricks. Were they all to be passed, the Bill would not exist as it did when the Commons considered it on Second Reading on 7 March. I therefore stress that to agree with the Government's amendments would be to disagree with the House of Commons on Second Reading—but of that, later. 
 I trust that the sittings motion is uncontroversial, and I repeat my thanks to all those who have come today.

John Healey: This is an unanticipated role for me. It is therefore an unexpected pleasure to serve under your chairmanship, Mr. Atkinson—your reputation for firmness and fairness goes before you, so I look forward to the Committee's proceedings.
 I offer my congratulations to the hon. and learned Member for Harborough (Mr. Garnier). Coming so high in the private Member's Bill ballot is both a singular stroke of luck and a singular responsibility, and in some ways presents a singularly difficult decision on what provisions to introduce. However, I gather that the Conservative party's view of the measure may have made that decision slightly easier. 
 As the hon. and learned Gentleman knows, the Government are concerned about both the principles and the technicalities of the Bill, some of which we shall deal with today. However, I accept that the hon. and learned Gentleman has chosen a Bill on an issue that is important to millions of people across Britain, so I pay tribute to him for that. 
 As my hon. Friend the Financial Secretary made clear on Second Reading on 7 March, before she took maternity leave, the Bill is in many ways an exact replica of the Bill that the right hon. Member for Skipton and Ripon (Mr. Curry) introduced last year. Many of the deficiencies that became apparent during the proceedings on that Bill have not yet been corrected in this Bill. My hon. Friend made it clear that the Government have serious concerns on five fronts: the cost to the Exchequer; the restriction of choice for the vast majority of pensioners, albeit with extra choice in certain directions for a rather privileged few; the impact on gilt markets; the compulsory introduction of unisex annuities, and the fact that the Bill's approach and principles conflict with the Government's desire to see a much more flexible approach to retirement in future. We shall deal with some of those problems today through the amendments, although some we shall need to tackle later. 
 The discussions that I have had with the hon. and learned Member for Harborough have been welcome 
 and I understand entirely and accept the reason for the sittings motion. I have made it clear to him that this afternoon that I shall seek to make only the points that are necessary for proper scrutiny and examination of the issues. I hope, given his plans, that adequate time will made available on Report—unhindered by discussion of other matters—for us to debate the Bill. On that basis, I am content with the sittings motion.

Vincent Cable: I confirm my support for the Bill, which is a successor to Bills that were introduced by the right hon. Member for Skipton and Ripon and the hon. Member for Bournemouth, West (Mr. Butterfill). The principles behind it are sound and enjoy wide support.
 I wish to make a couple of topical points that underline why the matter is so important. I spent much of this morning reading the paper on age discrimination that has been produced by the Secretary of State for Trade and Industry. It is welcome, if a little late, and looks to a future in which people will be encouraged to work to 70 and beyond, with flexible retirement options, and arrangements that ensure that their pensions are not damaged. It recognises that we are an ageing population and that people can work longer, and introduces a greater flexibility that will, incidentally, bring a large windfall to the Treasury through extra tax income. If retirement arrangements can be flexible, the question posed by this Bill is why can we not have more flexibility in the age of annuitisation and the compulsion associated with it?

Edward Garnier: Does the hon. Gentleman accept that there is implicit in the Secretary of State's announcement that people might have to work until they are 70 an admission that the state will not be capable of providing people with pensions from 60 or 65, so they will be required to work for longer?

Vincent Cable: Yes. The hon. and learned Gentleman makes a valid point. I was not using the intervention to develop a critique of the paper, but to underline the fact that there is broad acceptance that we are moving into a world in which people work longer and pensions are taken on a more flexible basis. Therefore, we need to consider annuities afresh.

Lynne Jones: I have not studied the paper, but I am sure that the intention is to give people more freedom to work should they wish, rather than to compel them to work beyond the current retirement age of 65.

Vincent Cable: That is right, and I am sorry if I gave the wrong impression. It is a positive development. It should be about working voluntarily and flexibility in retirement. That is why we have to address one of the few areas of compulsion that remain—compulsory annuitisation with a rigid age limit. That strikes me as being the purpose of the Bill.
 My second topical point is that yesterday some of us were caught up in the latest flurry of argument about Equitable Life. Among the many individual hardships that have been experienced, some of the most severe have been those of the annuitants. Unlike many of the investors, who have had a choice about 
 where to invest their money, they have been required by law to invest in a certain way; they have had no flexibility and no escape. The compulsion associated with those annuities has meant a particular degree of hardship for them. Those who are tempted to defend the system that makes annuities compulsory and to block any reform should remember the experience of those people. With those two comments, I add my support to the efforts of hon. Members to proceed with the Bill.

Howard Flight: I hope that the Minister will have the good sense to make clear the logical framework of the Government's amendments. No doubt he realises that virtually half the population is waiting to know how the Government will address the many worsening problems in the pensions area. I echo what has been said by the hon. Member for Twickenham. People have been locked into Equitable annuities; for many practical reasons, they have not been able to move from one provider to another. Although the opposite should be the case, a large proportion of the population is reducing its private sector savings for pensions. Major reasons include people's fear of being locked into an annuity provider that might go bust, or of having to buy an annuity when they do not want to and, in the case of those who have chosen to be frugal, of not being able to pass on their pension savings to their children.
 At the same time, however, a massively increased subsidy is going from the taxpayer to public sector pensions because the unfounded liabilities of public-sector employees have exploded. According to the lowest discount figure—the yield on index gilts—they are £250 billion; discounting at a yield equivalent to that used in the private sector, they are £500 billion. They have exploded. They are a liability on every taxpayer. In essence, the public sector—the taxpayer—is footing the bill for everything that has happened in the private sector. There is a major crisis, and as a result a major swing to money purchase pensions; and there, whamming one in the eye, is the annuity issue. 
 Two years ago, the Government produced a paper that included one or two minor but sensible proposals. The data on what one could buy for an annuity was cooked, because it assumed that, upon retirement, everything was in gilts, which of course is never the case with money purchase pensions. The latest data shows that what you can buy with an annuity has halved in real terms over the past five years. 
 A huge problem is waiting to be addressed; candidly, it is time that the Government got off the pot and addressed it. I very much hope that our deliberations today will not be simply playing silly games by trying to wreck a Bill; we all know that is not perfect, but it at least tries to make a start in addressing the problem. 
 Question put and agreed to. 
 Resolved, 
That, if proceedings on the Retirement Income Reform Bill are not completed at this day's sitting, the Committee do adjourn to a date and a time to be fixed by the Chairman.

Clause 1 - Amendment of the Income and Corporation Taxes Act 1988

Edward Garnier: I beg to move amendment No. 22, in
clause 1, page 1, line 6, leave out from 'Fund' to ', and' in line 7.
 The amendment seeks to remove from clause 1 the words 
''or sums for investment in a Retirement Failsafe Fund''.
 They were included to cater for the religious objections of the Plymouth Brethren to proceeding through an annuity and to allow for other forms of financial instrument. I understand that my hon. Friend the Member for Arundel and South Downs recently received a letter indicating that the Brethren are in discussion with the Treasury. It is with their acceptance and approval that we move the amendment to remove them from the provisions of the Bill. 
 If those discussions between the Brethren and the Treasury prove to be fruitful—that is more likely to be the case if we do not aggravate the Treasury by keeping those words in the Bill—we shall have achieved two good things. First, we will have shortened the Bill. Secondly, we shall have provided the Plymouth Brethren with some other route by which to ensure that their pension arrangements can be catered for within their religious faith.

John Healey: I pause for a moment to deal with one of two issues that are raised by the amendment. As the hon. and learned Member for Harborough said, the amendment relates to the concerns of Christian Brethren. During the Committee stage of the previous Bill—I referred to it earlier, and the current Bill is something of a replica—hon. Members, including the hon. Member for Arundel and South Downs, tabled an amendment to allow a personal pension scheme to invest in a retirement failsafe fund. Again, that was done to meet the specific concerns of a group that had principled objections to annuities. The Committee accepted that amendment, but negatived another that contained a specification of a retirement failsafe fund and the conditions that it would have to meet. As a result, the Bill was defective when it left Committee. As the hon. and learned Member for Harborough explained, because that defect has not been put right, this Bill, too, is defective.
 The hon. and learned Gentleman has explained how he seeks to correct the defect; and the Christian Brethren are now in discussion, but with the Revenue rather than the Treasury, because the Government recognise their concerns.

Jeremy Corbyn: Would the Minister explain the problem identified by the Brethren?

John Healey: It is not really for me to explain the views and principled objections of the Christian Brethren, but they believe that investing money through annuities is not the right thing to do. They are therefore unable to make that sort of provision. On the face of it, the Bill as amended would do nothing to assist the Christian Brethren.

Howard Flight: May I be of help? The Brethren have a religious belief that one should not gamble on life. They view insurance policies as a form of gambling; as a result, their religion does not permit them to invest in any form of insurance. Therefore, if they are to stick to their religious principles, they cannot use annuities.

John Healey: Nothing in the Bill now deals with those concerns.
 It is important, because the hon. and learned Member for Harborough spoke of it, to mention the Inland Revenue's pension simplification review. It is in that context that discussions are taking place with the Christian Brethren. Their principled objections are based on the pooling on which annuities depend, but the review will completely change the pensions landscape. The hon. Member for Arundel and South Downs rather understated the significance of the measures that we consulted on; we are now weighing the responses to that consultation. 
 The Government's policy remains that tax privileged pension savings must be used to provide retirement income for life from no later than the age of 75, and for no other purpose. For those with personal pension schemes, the most financially efficient way of achieving that is to buy an annuity. That is clearly the right thing to do in the vast majority of cases. However, because of the Brethren's principled objections to the purchase of annuities, the simplification review looked for another way of turning pension savings into retirement income in a way that replicates the advantages of annuitisation without the pooling of funds. 
 The Government are considering views from a wide range of groups, including those with more narrow objections, to see what might be made to work. We aim to produce detailed proposals in the autumn. If possible, we aim to include draft legislation in next year's Finance Bill, with implementation in April 2005. However, the Bill no longer makes the sort of provision that members of this and previous Committees and those Members who spoke on Second Reading professed to be concerned about.

Edward Garnier: Of course, it does not need to, because the Plymouth Brethren are in useful discussions with the Revenue—or the Treasury: it does not matter which—and anything that I do to upset those discussions would be entirely counterproductive. I do not want to do that; I want to produce something that best helps the Brethren, and the route that they have chosen is to have discussions with the Revenue. By removing those words, I would be fulfilling their request. I do not think that there is anything terribly suspicious about that, nor is it damaging to the Bill. The hon. Gentleman's arguments about previous Bills, although this one is a replica of what I might call the ''David Curry'' Bill, are beside the point.

John Healey: I do not suggest for a moment that there is anything suspicious, but I am taking this opportunity to confirm the points that are of concern to the Christian Brethren. Because of the carry-over from the previous Bill, this amendment relates to the particular discussions and provisions considered then. I welcome the hon. and learned Gentleman's
 confidence that making appropriate provision for the Christian Brethren is best pursued through working with the Inland Revenue, and can be left to us, rather than including such provision in the Bill. The technical change is a tidying-up change. In many respects, it has no substantive force in the Bill.

Edward Garnier: I am not sure where that leaves me, other than to feel it unnecessary to repeat what I have already said. The Minister's historical overview of the previous Bill was interesting but not exactly germane to the arguments that we are not having, if I may say so, this afternoon. This seems to be a benign and useful change to the Bill, and if it makes the Plymouth Brethren's life and the Revenue's life easier, why not celebrate that and invite the Committee to accede to the amendment?
 Amendment agreed to.

John Healey: I beg to move amendment No. 24, in
clause 1, page 1, line 16, leave out 
 'Subject to subsection (7) below'.

Peter Atkinson: With this it will be convenient to discuss amendment No. 27, in
clause 1, page 2, leave out lines 10 and 11.

John Healey: The two amendments relate to the point on gender neutrality that the hon. and learned Member for Harborough touched on when commenting on the sittings motion. I have to say to him that gender neutrality is not the same as gender equality. The change made by the Bill does not recognise the differing life expectancies of different groups that insurers take into account when setting annuity rates. The Bill would remove the right of insurers to underwrite personal pension annuities on the basis of gender and to allow that to be taken into account as a risk factor. It would instead force personal pension annuity providers to use composite annuity rates averaging male and female factors.
 The argument is that women get a raw deal because they receive lower annuity rates than men, but the value of an annuity is the same for men and women because it reflects the average life expectancy. Other aspects being equal, an annuity payable to a woman may be smaller than that payable to a man, but will on average be paid over a longer period because of a woman's longer average lifespan. My hon. Friend the Member for Hendon (Mr. Dismore) explained that clearly and at some length on Second Reading, on 7 March. It is worth reminding the Committee of that, because it underpins the Government's concern. Hence these two amendments.

Lynne Jones: There are other groups that have a greater life expectancy, but the Government have never decided that more affluent people, for example, or people from different ethnic groups, have a different life expectancy. Why should women be discriminated against in this way just because, on average, they happen to be fortunate enough to live longer? In any case, men are gradually catching up with women. This is an argument of the past. It is time that women had fair treatment.

John Healey: I do not accept that this is an argument from the past. I hope that in the relatively
 brief remarks that I shall make to explain the Government's position, I will be able to deal with my hon. Friend's concerns. In particular, we deal with the different levels of affluence that affect lifespan in various ways in the tax system, as she knows.
 I have figures for the top rates currently available, taken from the annuity direct rates table published in June. A 65-year-old man who purchases an annuity for £100,000 might receive £603 a month. The comparable figure for a female purchaser of the same age is £565 a month. For simplicity, those are figures for level annuities. However, if one looks at what those people would receive during their respective life expectancies, the male's total payments over his expected lifespan of 17 years would be £123,050, whereas over the female's life expectancy of 20 years, she would receive £135,720. Interest and inflation rates clearly play a large part in assessing the value of those amounts, but the simple figures illustrate that the value of a woman's annuity is no less than that of a man's. Other aspects being equal, an annuity payable to a woman may be smaller than that payable to a man, which is the concern of my hon. Friend the Member for Birmingham, Selly Oak (Lynne Jones), but it will on average be paid over a longer period.

Howard Flight: I challenge those figures. I recollect that the current average life expectancy of a woman is about two years more than that of a man. If the female's present receipts are about £450 a year less, and she has only two years longer to live, I cannot see how the Minister's figures are correct and the not-time-valued total can be that much more for a woman. His figures are illogical.

John Healey: The figures are based on a three-year lifespan difference, not a two-year difference, and they are derived from published annuity direct rates tables. I am happy to supply the hon. Gentleman with the details so that he can look at them in detail.
 It is not difficult to see that unisex annuities would generally favour women and disadvantage men. As on average a man will not live as long as a woman, his annuity will be paid for a shorter period and for the same outlay. That is simply illustrated: if a unisex annuity paid £580 a month for an outlay of £100,000, a male would receive £118,320 during his expected lifespan, whereas a female would receive £139,200. The Bill's proposals could prevent a man from entering into a personal pension annuity contract and buying with his own money a pension that reflected his life expectancy.

Jeremy Corbyn: I am trying to follow the Minister's argument closely, but I am finding it hard to square it with any kind of morality concerning the equal treatment of men and women.

John Healey: If my hon. Friend looks at the question that I am trying to clarify, of the value of the annuity that is purchased, he will see that a simple comparison about payment rates does not provide the entire picture. I ask him to take that into account, as I have done with my hon. Friend the Member for Birmingham, Selly Oak.

Jeremy Corbyn: I can see what the Minister is trying to say, but some people live longer than others of the same sex. Surely people should buy an annuity on the basis that they will receive an income for the rest of their life, whether they are a man or a woman. Should we not rebut the idea that the Minister is advancing?

John Healey: To be frank, I cannot see how a system of provision that is based on a pooling of risk and investment could be made to work in such an individualised way as my hon. Friend seems to be proposing.

Lynne Jones: We are not suggesting that it should be individualised; we are suggesting that the pooling of risk should be between men and women. The Minister has also not addressed the point about groups who have greater longevity. Should people who have had manual occupations not have a much higher annuity rate because they are known to live much shorter lives after they retire?

John Healey: My hon. Friend brings me back to the question of other groups. Insurers can take into account other factors, but the Bill would take away their ability to do that for the different lifespans of men and women.

Derek Wyatt: Has my hon. Friend checked whether it is legal to make such a differentiation under the human rights law?

John Healey: My hon. Friend can be confident that if the differentiation was illegal under human rights legislation, there would have been a challenge to the practice and the existing provisions.
 Any provider when setting a composite rate would be at risk of the male-female take-up not matching the assumed mix, and therefore may build in a margin that would lower annuity rates generally. The proposed change would also introduce inconsistency between types of pension arrangement. If the annuity were bought to secure benefits from an occupational pension scheme or a retirement annuity contract, rates could still take account of the annuitant's gender. For those reasons, the Government cannot accept the current provisions, which is why I recommend my hon. Friends and Committee members to accept the amendment.

Edward Garnier: We have come to the first group of the amendments that I warned the Committee about before we began the substantive debate. The two amendments would wreck the Bill. Amendment No. 24 would remove the reference to the proposed new subsection (7) of section 634 the Income and Corporation Taxes Act 1988. There is a whole raft of vital material in subsection (7) that amends the 1988 Act. Effectively the Government are doing away with that, which drives a coach and horses through a Bill that the House passed by a majority of 101. I am not sure that that is the job of the Committee.
 The amendment also suggests to me that the Government may not be taking the Bill and the issues that lie behind it seriously. One of the things that we should do in giving people independence in pension provision and the choice of how to fund their own old age is enable them not to have to fall back on 
 the state. The Government's answer is continual means testing. They want to increase means testing in every aspect of welfare and state support. I am not sure that that is what we should be doing. We should be enabling people to look after themselves subject to a safety net, from the point of view of the taxpayer and the individual pensioner. I am afraid that amendment No. 24 would do away with that valuable safety net. If the Committee accepted the amendment, the Bill would be unworkable from the start. 
 The points that the Minister raised in support of amendment No. 27 are not well made. The hon. Members for Birmingham, Selly Oak and for Islington, North (Jeremy Corbyn) began to probe—rather uncomfortably—the Treasury's policy in that regard. Nowadays and increasingly, the difference in life expectancy has less to do with one's gender than one's occupation and where one lives. Statistics show that the life expectancy of someone living in Manchester is less than that of someone living in Dorset. There are all sorts of reasons for that, which I will not delay the Committee with. The Treasury would have more of my sympathy if it were to move its periscope or searchlight away from the difference between sexes, and on to the differences between people's occupations, lifestyle and geographical location. 
 We should not be considering life expectancy of men and women, but the life expectancy of all our fellow citizens from retirement, be that at the age of 60, 65 or 70. The figures show that there is now a difference of only two years in life expectancy for men and women at 60. That has fallen considerably over the past decade. I do not have the exact figure at my finger tips, but it is not necessary to enable me to make my point. 
 If the Government want to retain their European credentials, about which they tell us so much, they might care to consider what happens in continental Europe. For example, Holland is moving rapidly towards unisex annuity provision and I believe that Sweden already has it. As far as I know, there have been no complaints from the annuity providers of such seriousness that the Governments of those two countries want to reverse the position.

Jeremy Corbyn: Does the hon. and learned Gentleman have any evidence that the selling of annuities varies between different parts of the country or between different former occupations?

Edward Garnier: I do not, but annuity providers obviously want to sell annuities with a gender difference because it is more useful for them to produce different rates for different sexes. If it was required or the provision was available for people to buy annuities irrespective of their gender, we would introduce greater fairness and recognise the modern demographic and social picture of our country. As the hon. Member for Birmingham, Selly Oak said, the chances are that someone who did heavy manual work will not live as long as an overweight—

Jeremy Corbyn: Politician.

Edward Garnier: I was going to say an overweight member of the Bar, but he may also be a politician, although people sometimes doubt that.

Jeremy Corbyn: A lot of them are.

Edward Garnier: A lot of them are, but not enough these days, which is why we have such poor quality legislation. Let me leave the matter there.

Jeremy Corbyn: The hon. and learned Gentleman could end up being divisive.

Edward Garnier: That I do not want. I do not want to lose what support I may have.
 The Government seem to be out of touch with reality, out of touch with our European partners and out of touch with the needs of the pension public. I invite the Committee to examine with scepticism the argument advanced by the Economic Secretary.

Jim Cousins: I want to ask the Minister some questions because we have been given a great deal of interesting information and the Committee would benefit from some consideration of the arithmetic that he gave us verbally.
 First, the comparison was between a man and a woman each having a £100,000 pension pot. The reality is that women tend to have smaller pension pots than men because their lifetime employment and savings rates are lower than those of men. That should be taken into account in this discussion. 
 Secondly, the Minister said that if insurers were forced to composite for the purposes of gender, the overall annuity rate would be lower. That is a serious and important statement and I wonder what evidence he has for that. 
 Thirdly, presumably the comparison that he was inviting the Committee to make was between two standard, flat annuity rates, but there is a serious issue about whether we should make more effort to encourage joint life annuities, which precisely extend the benefits of a pension pot of either a man or a woman to the other partner. Surely the Bill would lead us in that direction and that must be helpful. 
 Finally, the Government are proposing a number of different annuities, and I draw the conclusion from their ''Modernising Annuities'' paper—I suppose that I should have worked it out before, but it has come as a bit of a surprise to me—that they intend the same feature of gender distinction to apply to the new style of annuities included in their proposals. That is a serious and interesting point on which I seek clarification. 
 Finally, the state pension scheme includes a provision for deferring pensions and getting a slightly higher basic state pension in return. The Government propose going rather further in that direction by increasing the enhancement for deferring the date of take-up of the state pension. As far as I know, there is no gender distinction in those proposals. One possible implication of the Government's position this afternoon is that such a 
 proposal might be brought forward. I should like some reassurance on that point.

Howard Flight: It seems to me that the Minister's arguments against moving to composite annuities are weak, ''Yes Minister'' arguments. It is time to bite the bullet. I thought that the points just raised were extremely relevant. As far as I am aware, there is no difference in what single people get as a state pension if they have paid for the full contribution period—albeit that women are still expected to live longer. How can the Government happily apply the principle of sex equality in that case but not in the commercial sector?
 We all understand the arithmetic points, but the obvious issue has already been raised that one can cut and slice the numbers by all sorts of different characteristics, if one so wishes. The real point is that moving to composite annuity rates, and even joint life annuities, and abolishing the complication of requiring separate calculations for men and women would make many of the other reforms simpler and easier to deal with. I see no arguments of principle against moving in that direction, nor will it cause any commercial problems. It is obfuscation and an endeavour to obstruct the Bill's progress.

John Healey: I respond directly to my hon. Friend the Member for Newcastle upon Tyne, Central (Mr. Cousins). I am happy to set out on paper the data that I described; I shall let my hon. Friend and other members of the Committee have it in time for Report.
 My hon. Friend's other substantive point was the risk I identified that, were annuities to be set on a unisex basis, the rates of return could be affected. He asked what evidence that was based on. We heard that message consistently in our consultations with providers, particularly insurance companies. The reason is that if the composite rate, based on a male-female ratio, does not match the assumed risk, they may build in a margin that would lower annuity rates generally.

Howard Flight: Exactly the same is happening with separate lives: because people are living longer than expected, the providers of annuities have been obliged to build in a bit of margin to protect themselves from past losses. I see no difference in building in margins between single sex or unisex rates. It is all about actuaries getting right their forecasts of life expectancy.

John Healey: The hon. Gentleman is right to the extent that we can see an increasingly changing pattern in the way that people choose to live together. He is certainly right that the annuities system generally builds in for men a provision that traditionally allows an income that will support both a man and a female partner.

Edward Garnier: It occurs to me that all members of the Committee are Members of Parliament, and when we come to retire, our parliamentary pensions will be paid irrespective of whether we are men or women.

Howard Flight: Like the state pension.

Edward Garnier: Yes, like the state pension. If the actuaries who run the parliamentary pension scheme can forecast in such a way that the Financial Secretary,
 who is away on maternity leave, will receive a pension on exactly the same basis as the Economic Secretary, the annuities providers being dealt with under the Bill should have no problem in doing the same.

John Healey: That may be a point that the hon. Gentleman can take up with the providers.
 A number of Members have touched on the question of gender and other indicators of life expectancy and its implications for the provision of rates of annuity. As I tried to explain earlier, insurers take account of a number of indicators of risk, including gender. As I said to my hon. Friend the Member for Birmingham, Selly Oak, they do not price only on gender. However, it is important that annuities are priced on the basis of risk, and gender is established as and remains a key determinant of risk. Removing the ability to account of one of the main risk factors could increase the price for all. On that basis, I invite the Committee to support the amendment. 
 Question put, That the amendment be made:—
The Committee divided: Ayes 2, Noes 9.

Question accordingly negatived.

John Healey: I beg to move amendment No. 25, in
clause 1, page 1, line 16, leave out 'must' and insert 'may'.

Peter Atkinson: With this it will be convenient to discuss the following amendments: No. 28, in
clause 1, page 2, line 12, leave out 'under section (1A)'.
 No. 29, in 
clause 1, page 2, line 13, leave out 'must' and insert 'may'.
 No. 38, in 
clause 1, page 2, line 33, leave out from beginning to end of line 34 and insert 
 'personal pension scheme provides for the payment of an annuity which— 
 (a) makes the provision specified in section 634(1A) and (8); and 
 (b) commences no later than the date on which the member attains the age of 65'.

John Healey: Amendment No. 25 makes it compulsory for a personal pension scheme to provide a minimum retirement annuity. The annuity will have to meet a minimum level set by the Chancellor of the Exchequer. The set amount of annuity income also has to increase in line with retail prices index up to a cap of 5 per cent. and it has to be bought no later than at the age of 65. In his comments on the sittings motion, the hon. Member for Twickenham described it as a rigid age limit.
 The level of the minimum retirement income is to be set annually by the Government. The important question for the hon. and learned Member for Harborough is what, if any, figure does he have in mind; or is he content merely to allow that decision to be left to the Chancellor? As I understand it, the declared aim of the Bill's proponents is that it should be set at an amount which would ensure that the pensioner would not fall back on means-tested state benefits. Otherwise, the Exchequer could end up paying out twice—once for the cost of the pension scheme tax relief given on a person's pension fund and a second time for the cost of state support. 
 Let us suppose that the minimum annuity that the Bill requires was to be set at the level of the minimum income guarantee. From April this year, as my hon. Friends will know, it is £102.10 a week, or £5,309.20 a year. At the best annuity rates currently available, the cost to provide this level of income for a 65-year-old man would be about £73,000. If we assume that people would want to take their maximum tax-free lump sums, the necessary fund would be some £97,000.

Howard Flight: Surely the assumption should be how much more than their state pension they need to provide for at that age? It is a misrepresentation to say that the minimum income annuity would have to provide the total amount of income up to the minimum income level.

John Healey: I thank the hon. Gentleman for his comment, which is a helpful contribution to the discussion. If he checks the record, he will see that I pose this as a supposition in the absence of a clear definition from the proposer and proponents of the Bill of what would constitute the appropriate level. Some may argue that that should be the basic state pension, rather than the minimum income guarantee. I will come to that in a moment.
 If the annuity were index-linked, as the Bill would require, a fund would be needed of some £134,000 before deduction of the tax-free lump sum. That makes no allowance for those who would like the minimum retirement annuity to continue to be paid to their survivor after their death. The cost of such an annuity would therefore be significantly more. 
 Hon. Members will be well aware that most of those retiring have pension funds of far less than these amounts. The average is around £30,000. About a quarter of that is taken as a tax-free lump sum, which leaves even less available for annuity purchase.

Edward Garnier: That figure is trotted out regularly by Treasury Ministers, although sometimes it is £25,000, and at other times £30,000. That is, of course, the average size of an individual pot, but most pensioners about whom we are talking own more than one pot.

John Healey: The hon. Gentleman is mistaken. If he checks the evidence and analysis provided by the Association of British Insurers, he will find that most people do not have more than one pot, although the fortunate few may do so and have the flexibility and level of investments that will see them through retirement. They will greatly benefit from the Bill, but they are the wealthy—the privileged few.

Lynne Jones: Given that Government policy is to increase the proportion of retirement income provided through private pensions and to reverse the current 40:60 split, do the Government expect, or hope, that in the future many people will retire with much larger pension pots? Surely the whole purpose of the Bill is to try to encourage people to save for their retirement?

John Healey: My hon. Friend is right in that one of the Bill's ostensible purposes is to do just that. The Government are putting in place a range of policies designed to do precisely the same thing. It is especially important for the Government to put in place improved support for the very poorest who have not had the opportunity during their lifetime and who do not have the wealth to make such provision for themselves to provide adequately for their old age, hence the importance of the minimum income guarantee and the pension credit that will come into force this October.

David Ruffley: In talking about the MRI level, the Minister has actually given us two possibilities, or rather he has given us his two possibilities: first, the difference between the MRI and basic state pension; and secondly, the difference between the MRI and the minimum income guarantee. There is a third possibility and I should like the Minister to tell us whether he has examined it. It is that the MRI is over and above both the guaranteed element of the pension credit and the savings-related credit that is above the current MIG—in other words, the point at which the savings element of the new pension credit runs out. In 2003, I think that would be about £139 for a single pension.

John Healey: The hon. Gentleman says that the level of the MRI could be defined in a number of ways. I am not proposing any particular solution or formula; I am merely making observations. I am probing whether the Bill's promoter has in mind a definition or objective for the MRI. I am also highlighting the fact that, at whatever level the MRI was set, the Bill would benefit a minority of pensioners.
 Figures published by the Association of British Insurers show that the average amount spent on each pension annuity in 2001 was about £25,000. For about 45 per cent., the amount was less than £10,000. As the hon. Member for Arundel and South Downs helpfully suggested, some may argue that an annuity the size of the minimum income guarantee would be excessive and that all that needed to be covered was the difference between that and the basic state pension. The basic state pension is £77.45 a week from April, so the difference between that and the MIG would be £24.45 a week or £1,281.80 a year. Even then, the fund needed before deduction of the tax-free lump sum to secure that income would be about £32,000, which is far more than most people would have available. 
 The changes proposed in the Bill would benefit only the wealthier sections of the population: people who can build up larger pension funds. Under the Bill, most people would still be required to use the whole of their pension fund to buy an annuity, and would gain 
 nothing from the changes. The Government are committed to increasing—

Jim Cousins: Since we last had an opportunity to discuss these issues in a Bill Committee such as this, we have had the benefit of seeing in full the Government's pension credit proposals. My hon. Friend the Minister will know that one feature of pension credit is that the savings element kicks in for a person with a small individual pension pot whether or not they annuitise. Income from that pension pot is attributed for the purposes of calculating savings credit whether or not an annuity is taken out. Does not that point to the fact that we must do something quite serious for people with small individual pension pots? Under the rules of pension credit, they have no flexibility about when they annuitise, because the income is attributed to them anyway.

John Healey: My hon. Friend makes an important point about people with a small pension pot, and I will consider that further. He also underlines an important point about the Bill, which is that it is essentially the same Bill as we had last year. It does not adequately reflect developments that have taken place since then. One development is the Government's commitment to increasing the MIG in line with earnings at least for the remainder of this Parliament.
 For the proposal to be effective in its aim, the minimum retirement income annuity would need to be linked, like the MIG, to earnings, but no such annuity product exists. The combination of conditions would impose a huge reduction in flexibility on the vast majority of pension scheme members, who would have no choice but to use the whole of their accumulated pension fund to buy the minimum retirement income annuity. The Bill would remove people's options as to timing and type of annuity purchased, and force them to buy an index-linked annuity for each personal pension arrangement that they hold. That may not be what they want or in their best financial interests. 
 I think that my hon. Friend the Member for Newcastle upon Tyne, Central might have been hinting at the fact that many people deliberately have a number of small personal pension arrangements, or split their funds into separate arrangements, so that they can stagger annuity purchase and take a selection of annuity types at different times up to the age of 75. They see that flexibility as important. The Bill would remove those options entirely once people reached the age of 65. 
 People currently have the freedom to decide whether a flat rate or an increasing annuity best suits their needs. There are various ways in which an annuity can increase income, but the Bill would take that flexibility away. As I said, it would require people to buy the annuity by the age of 65, which means that most people would have no option but to draw all their pension benefits from that age, regardless of whether they had retired. Again, that would limit the choice that they currently enjoy. 
 Advancing the contribution stop by 10 years for personal pensions is a substantial issue. It is not compatible with the need to encourage increased economic activity among the over-50s to reflect 
 improvements in life expectancy and the changes in many people's aspirations. It is important to emphasise that people now have a choice, but the Bill would take it away. 
 The hon. and learned Member for Harborough may say that the Bill would expand people's choice if they were compelled to use only a proportion of their pension fund for annuity purchase. That would be true, but only for the small minority who could build a large pension fund. It is unacceptable to expand choice for the very few at the cost of a massive loss of flexibility for everybody else. 
 For those reasons, the Government cannot support the compulsion that the Bill would introduce, and I invite the Committee to accept amendment No. 25.

Edward Garnier: Amendments Nos. 25 and 29 are must-may amendments, but they are not simply drafting amendments. They would alter the whole philosophy behind the Bill of granting people the independence and freedom to make a choice. The Government are watering down the force of the Bill, and substituting ''may'' for ''must'' is a much more subtle change than it may usually be.
 The Minister dangled what he thought was a delicious carrot in front of me, as if I would, by failing to respond or by responding in the wrong way, destroy the case that I am making for the Bill. However, he should look carefully at clause 2, which states: 
''The amount of the Minimum Retirement Income shall be set for each financial year by the Chancellor of the Exchequer''.
 Later, I hope to discuss amendment No. 23, which would add the words ''following consultation''. That aside, it will be for the Chancellor to decide the amount of the minimum retirement income for each financial year, and he will no doubt take into account the point that my hon. Friend the Member for Arundel and South Downs made a moment ago. It will be entirely for the Chancellor to decide whether he opts for the smaller sum, chooses one of the three options mentioned by my hon. Friend the Member for Bury St. Edmunds (Mr. Ruffley) or, for fiscal and economic reasons, comes up with a fifth answer to the problem. However, I should have thought that the Government would be delighted that I—as a Conservative Member of Parliament, I am not terribly fond of the Government—was giving the Chancellor the power to exercise his discretion in a way that suits his fiscal and monetary planning.

David Ruffley: Does my hon. Friend agree that this is perhaps the only example of an Opposition politician trusting the Government on anything this month?

Edward Garnier: Every month, or perhaps every six months—I cannot remember how often tax bills come in—I give the Chancellor quite a lot, and I am giving him a bit more now.

Howard Flight: What the Minister has not realised is that the provision is included only as an ultimate
 safety precaution to ensure that people do not waste their pension savings. I have always believed that the risk of that is very small, particularly in the case of women. However, as things stand, the Chancellor might fix the amount at zero because, as has been pointed out, the interaction of the pension credit means that it does not need to be higher than zero because it does not affect the additional entitlement that one would receive under the pension credit. There must be flexibility, but it is clear that what might be appropriate will be nothing like the illustrative sums that have been described.

Edward Garnier: I wholly agree with my hon. Friend. Furthermore, just because we cannot help everybody that does not mean that we should not help anybody. The Government's policy is that this measure will help only hundreds of thousands, or the low millions, so we should not help anybody. That is not a convincing argument. Amendment No. 28 is a further attack on the gender equality agenda that we discussed a moment ago, but I will not rehearse those arguments. If any of my hon. Friends or any Labour Members are seduced by the Government's arguments on amendment No. 28, I remind them of the points that we have just discussed and the issues of gender neutrality that we voted on in the last group of amendments.
 Amendment No. 38 is another killer amendment, because if it were passed, the Bill would be destroyed. If the Committee wishes to destroy the Bill, it will support amendment No. 38, which maintains section 634 of the Income and Corporation Taxes Act 1998. It forces annuities on those who wish to have a private pension, and it does so—as we can see from the list of amendments—at the age of 65 instead of the current age limit of 75. People will have to make that choice 10 years earlier than they otherwise might have done so. Yet again, the Government are removing choice, not increasing it, and removing the ability of current and future pensioners to make planned and adequate provision for their old age. The absence of flexibility from the Government's arguments points in only one direction—that the amendments should be resisted. 
 If amendment No. 38 is placed into the text of the Bill, the resulting text does not make sense in English. If the Committee supports amendment No. 38—and I sincerely hope that it does not—the Minister should withdraw it anyway so that it can be rewritten in a way that makes sense.

John Healey: Amendment No. 38 was tabled in an effort to be helpful. If the hon. Gentleman feels that it does not make sense, I am happy not to press it. It was aimed at maintaining the original aim of the Bill—that people may not invest in a retirement income fund unless a minimum retirement income annuity is purchased by the age of 65. In response to the hon. Gentleman, I am happy not to press that amendment, but I will press the others.
 Question put, That the amendment be made:—
The Committee divided: Ayes 2, Noes 8.

Question accordingly negatived.

John Healey: I beg to move amendment No. 26, in
clause 1, page 1, line 20, leave out from beginning to end of line 8 on page 2.
 Clause 1(4)(b) removes the requirement that the whole of a pension fund, other than the tax-free lump sum, be used to purchase an annuity by age 75. With a transitional exception for those already taking income withdrawals from the fund, the clause instead substitutes a requirement to purchase a minimum retirement income annuity by age 65. The amendment nullifies clause 1(4)(b) so that the provision will remain unaltered and the age 75 annuitisation rule will continue to apply. 
 This is a substantive amendment, so I should explain the Government's reasons for it. At the moment, we encourage people to make private provision for their retirement by providing very generous tax incentives. Contributions paid by both individuals and employers to occupational and personal pension schemes, including stakeholder pension schemes, get full tax relief, as do pension fund investment returns and capital gains. 
 After the tax from current pensions in payment is taken into account, the net Exchequer cost of the pension scheme tax reliefs is estimated to be more than £13 billion a year. That means that of every £100 in a person's pension pot, an average £30 reflects tax relief given by the Exchequer. Some of that cost may come back to the Exchequer after 20, 30 or 40 years when people start paying tax on their pension incomes. However, more than a quarter is never retrieved because of the tax-free lump sum and because many people enjoy a lower marginal rate of tax in retirement. 
 In entering a pension scheme, a person buys into a long-term savings arrangement that is intended to be used only to provide a retirement income. Supporters of the Bill argue that those who have sufficiently large pension pots, with residual funds after the minimum retirement income annuity has been secured, should have free choice over the use of the residual pension fund—but that is not the contract that they entered into. As well as the tax-free lump sum, one of the benefits of the contract is that the Government defer the taxation of money going into the pension scheme until the person draws a pension. The tax reliefs on pension contributions and pension build-up are provided so that people can save for an income in retirement, not for other purposes. 
 However, another issue needs to be brought out, to which my hon. Friend the Financial Secretary referred in her short contribution on Second Reading, which is the additional cost to the Exchequer that would arise. 
 Removing the current requirement for the whole of the remaining fund to be used for annuity purchase by age 75, as the Bill proposes, would transform overnight personal pension schemes into a very tax efficient way for people to pass on their wealth when they die. At present, people use only a fraction of the possible amount of pension scheme tax reliefs available to them. Those who are already saving for a pension have the potential for take-up of more than a further £14 billion worth of reliefs within the current tax limits, of which nearly £6 billion relates to higher rate taxpayers. If one also includes those who are making no savings towards a pension at all, the potential is for a total of more than £34 billion worth of reliefs each year—I emphasise the fact that those are potential, but they are nevertheless significant sums indeed. For people of modest means, that is often because they face other demands on their income, or have other priorities during their working years. However, even higher rate taxpayers do not save as much as they could in tax privileged pensions. 
 More than £8 billion of the unused £34 billion could be claimed by higher rate taxpayers, many of whom could no doubt afford to save more. Those people who already have the largest pension pots are most likely to have substantial amounts of money in other forms of savings and investments. With the new incentives that the Bill would offer, they would need only to switch a small proportion of those savings into pension schemes for the public cost of the pension scheme tax reliefs to increase by hundreds of millions of pounds each year. Very little if any of that extra tax relief would benefit the majority of people with modest pension funds who need to boost their retirement income and who hold limited amounts in other forms of saving. I cannot believe that hon. Members would view as justified or fair spending such large sums of public money for the benefit of those in an affluent minority who are least in need of Exchequer support to help them provide for a decent retirement

Richard Allan: The Minister said the proposals would benefit only an affluent minority, but before that he argued that the provision would cost a huge amount because other people who do not save for a pension would benefit from the reliefs if they did. Will the Minister clarify that anyone would benefit from the reliefs? He believes that the most affluent would benefit most, but the provision is not restricted to the most affluent.

John Healey: No, I was clear that although the most affluent are not the only people who would be likely to benefit from such an increase in the reliefs most immediately, they would largely be the beneficiaries. Very little if any of the extra tax relief would benefit the majority of people with modest pension funds.
 The Government are not against change, as our simplification of pension taxation consultation demonstrates. However, the need for change must be clearly evidenced and the benefits, in our view as a Labour Government, must be distributed as widely and as fairly as possible. The purpose of the Bill is to allow people to access the pension fund that is not used to secure a minimum retirement income annuity. However, there is no justification for using the pension 
 scheme's tax relieved funds for a purpose other than providing retirement income for life. That was the basis on which the tax reliefs were given. The amendment therefore restores the requirement that the whole of the pension fund has to be used to provide an annuity income for life by no later than age 75. I ask members of the Committee to consider the points that I have made and to support the amendment.

Edward Garnier: I shall be brief, as there is not much to be said in response to the Government's case. It reveals the mantra that we heard a moment ago; namely, that because we cannot help the whole of the population, we must not help any of it.
 The Government's amendment, quite apart from again attempting to destroy the Bill, introduces a disincentive. If the Government are to be believed when they say that they want to reverse the 60:40 split between state and private pension provision, so that it becomes 60 per cent. private and 40 per cent. public, they must not continue to pour down disincentives on those who wish to save. 
 I want people to save for their old age and to be able to use every available financial instrument to provide for their own pensions. That does not mean that I do not want the state or others to help those who cannot do that, but it seems to me that it is a public good if people who can save are encouraged to do so. It seems to me that that is a good thing to support, whether one is a member of the Labour party, the Conservative party or the Liberal Democrats, and that that should not be controversial. 
 I also want people to have the freedom, on their death, to pass on the money that they have saved, whether it be in the form of houses, stocks and shares or pension pots, to their dependants, to adult family members or, if they choose, to charities and other good causes. That also seems to me to be uncontroversial and a public good. It is not necessary for the Government to introduce disincentives to make the general public behave in a responsible and sensible way in their old age. The belief that people will take improper advantage of the tax concessions to misuse their pension pots in some dangerous and unattractive way, strikes me as unreal. The Government should be a little more relaxed and should trust the public to behave sensibly with the money that they save for their old age. 
 I invite members of the Committee to resist the Government's amendment, because they seek to deny flexibility of income for people at the young age of 50 and refuse to allow people to make sensible planning for their retirement. Retirement planning ought to begin in one's 20s, 30s and 40s. Too often, people leave it until far too late. If the Government maintain the current scheme, or reinforce it through their amendment, that will damage their own policy of reversing the 60:40 split. I therefore invite the Committee to dispense with the amendment.

Howard Flight: The argument put forward by the Government today has been heard before and seems
 to me to be complete nonsense. Already, people save for pensions, take out their tax-free lump sum and often leave that to their children. The view that everything that is saved in a pension must be drawn out and spent, and cannot be passed on to children, is not realistic. In more flexible arrangements, it is right that a fair rate of tax should be paid on anything that is left when it passes into someone's estate and is inherited by their children. The Government have never put up any argument as to why a standard pension exit tax similar to that which applies to what remains in draw-downs, would not be a feasible way of doing that.
 Everyone agrees that it is crucial to encourage people to save more for pensions; the fall-off in pension savings is a huge worry in relation to the problems caused by the fall in the stock market. In our society, more than 70 per cent. of people own their own houses and it therefore appears that people are hugely motivated to build up savings, buy their house and hand it on to their children. One way of stimulating pension saving, particularly when that will mostly be through money purchase, would be the introduction of a straightforward route by which one could hand the remainder—if one chose to live more frugally in old age—on to one's children after a fair level of tax had been taken. That could be a major motivation to people to realise that it is worth saving via the pension route after all. Therefore, there has been a complete misunderstanding of people's motivation and human nature. 
 The professed figures do not stand up if there is a proper pension exit tax, and the point has already been made that the biggest amount of non-take up is by those who are not saving for pensions at all. In terms of arguing who gets what benefit, the Minister expressed an opinion on the raw data, and even he said that it could be the other way round. 
 Although we do not agree with them, the Government's Green Paper proposals pick up the issue in another way, by suggesting a cap on the total amount of money purchase or the value of pension savings that anyone can have at retirement—with the exception, of course, of the Prime Minister, the Lord Chancellor and every public sector employee. Under the proposals, it will be the taxpayer, rather than the individual, who is liable to pay any excess.

John Healey: The hon. and learned Member for Harborough asked why we should not encourage more pension savings, and my answer to him is the same as a brusque dismissal of the arguments put by the hon. Member for Arundel and South Downs. It would be the better-off who would be tempted to save more if they could use the pension funds as a tax-efficient way of passing on their wealth when they die. The purpose of tax-privileged pensions is not to pass on wealth when people die but to provide for a better pension income in retirement.
 I should reiterate that the Government are not against change. The hon. Member for Arundel and South Downs drew our attention to the pension taxation simplification consultation. The 
 Government's point is that if we are to change the system, we need to ensure that the benefits are distributed as widely and fairly as possible. Under the plans in this Bill, they will not be, so I intend to press my amendment.

Jim Cousins: I do not in any way dismiss the Minister's points, which I take seriously, but the defects in the Bill could be dealt with by a system of tax exit charges, such as those that the Government already have for draw-down schemes. Indeed, the ''Modernising Annuities'' consultation paper proposes to take them further. The Bill cannot propose tax exit charges, but it would be one way of dealing with the defects to which the Minister has drawn our attention. I would appreciate a response on that.

Edward Garnier: I could not agree more. The Government are lacking imagination in their approach to the Bill. It may not be perfect, as my hon. Friend the Member for Arundel and South Downs said, but the philosophy behind it is one on which all parties agree. The Government should allow themselves a little more flexibility, rather than thinking that any idea that emerges into this policy field from outside the Treasury must be bad ab initio. That is a hugely regrettable attitude, and I wholeheartedly agree with the hon. Gentleman.

Jim Cousins: That is a fair point, given the context of my remarks.
 I want finally to draw attention to the fact that the Government ''Modernising Annuities'' paper contains ideas for reforming the income draw-down rules that currently exist for pension pots. Those ideas are not flexible or radical enough, and I want the Government to go further. They are proposing a system of what they call unsecured benefits, which has many of the features of the Bill's proposals. However, the Government's proposals are for provisions that only the most wealthy and sophisticated people could possibly risk taking advantage of. The Government could perhaps consider that point in another place.

John Healey: I can tell the hon. and learned Member for Harborough that it is not the Treasury's belief that unless we thought of it, a proposal or idea is no good; I do not accept that. We are considering the views that have been offered in relation to the simplification of the taxation of pensions, whether there is to be a universally applicable pensions exit tax, as the hon. Member for Arundel and South Downs suggests, or a tax exit charge, as my hon. Friend the Member for Newcastle upon Tyne, Central calls it. We are also considering the income draw-down rules that my hon. Friend mentioned. This afternoon, we are dealing with the defects of a much narrower Bill, so this is not the place in which to discuss broader questions. The amendment deals with what the Government regard to be serious flaws in the Bill, and I shall seek to press it to a vote.
 Question put, That the amendment be made:—
The Committee divided: Ayes 2, Noes 7.

Question accordingly negatived.

John Healey: I beg to move amendment No. 41, in
clause 1, page 2, line 38, leave out from 'be' to end of line and insert 
 'assessable to tax under Schedule E (and section 203 shall apply accordingly) and shall be treated as earned income of the member'.
 I hope that the hon. and learned Member for Harborough will see this as helpful. Clause 1(7) inserts into the Income and Corporation Taxes Act a new section 637B that defines retirement income fund. In doing so, it provides that any withdrawal from the fund should be regarded as income within section 1 of the Taxes Act. I assume that the intention is for the withdrawals to be taxable as income, but the words in the Bill are insufficient to enable the proper tax treatment to be determined. The amendment, therefore, brings the taxation of withdrawals from the retirement income fund in line with income withdrawals under section 634A of that Act. It provides that withdrawals from the retirement income fund shall be treated as earned income assessable to income tax under schedule E, and that tax will be collected under the PAYE system. I hope that the Committee will support the amendment.

Howard Flight: I put it to the Minister that the income should be assessed as income to people drawing pensions, just like any other pension income. By referring to the part of the Act that he mentioned, he made me wonder whether his definition of the income would require people to make national insurance contributions. I do not think that that is anybody's intention. I am checking that he has the right definition for what, in practice, everyone wants to achieve.

John Healey: What I propose and am keen to achieve with the amendment is precisely the same as the hon. Gentleman. The short answer to his question is no.

Edward Garnier: The Minister may well have answered the question that I intend to pose in response to my hon. Friend. I want to be clear beyond doubt about the rate of tax that is effectively being implied, and to what proportion of the retirement income fund it will apply.

John Healey: I believe that there is no difference in our intentions. If the hon. and learned Gentleman will allow me, I will write to confirm those details, with copies of the letter to other members of the Committee.
 Amendment agreed to. 
 Question proposed, That the clause, as amended, stand part of the Bill.

Edward Garnier: We have had an interesting discussion, and I am grateful to the Minister for the calm and measured way in which he moved his amendments.
 I trust that he will not take personally the votes that were cast against them. I know that he is here to do a job; he is holding a brief for another member of the Government, and I congratulate him for the way in which he presented his case. I thank him also for the care and attention that he gave to arguments that were contrary to those put forward by him and his Department.
 As an Opposition Back Bencher, I accept that I shall find it extremely difficult, in the great scheme of things, to alter even one aspect of pension law, especially as the Government have published a Green Paper and are engaged in various other consultations. However, time is moving on. The Government have been in office for six or seven years, and the big issue for our constituents is increasingly that of pension provision—right across the board. If, by means of the Bill, the Government can get it into their head that the issue is burning away outside Westminster and is desperately in need of a solution, even I, a Conservative Back Bencher with little power to influence public policy, will have achieved something. 
 As I said, I fully understand that every Government, every Chancellor and every Secretary of State for Work and Pensions—and all their predecessors—must have the right ultimately to design and control how pension provision is made. However, that does not mean that they should shut their minds to the opinions and concerns of those outside Government—Back Benchers of their own party or the Opposition parties, or those in the wider pensions industry and others who take an interest in the subject. 
 As those well-meant words pass across the Room—I sincerely mean what I said—I hope that between now and Report, if we are lucky enough to get to that stage, the Minister will carefully ponder what we are saying. We all want to solve the pensions issue; some of us want to get on and to do it rather more speedily than the Government, who seem unwilling to do so. Subject to what other Members might say, I invite the Committee to support the inclusion of clause 1, as amended.

Vincent Cable: I wish to raise an issue with the Minister that may help us clarify our views on the Bill. Subsection (7) deals with the return of contributions on death. Most of us who want to see reform are pragmatic; it does not matter how annuities are reformed and no particular formula is magic. A central problem is the fact that when an annuitant dies, the annuity dies with them. If the actuaries are right, and the man dies early and before the other members of the family, the annuity will be swallowed up not by the Government—some might argue for that—but by the insurance companies.
 That is one of the basic frustrations about the current annuity arrangements, but there are various ways round the problem. One is that proposed in the Bill—the establishment of a retirement income fund. However, other ways are being mooted, and I put my question in that context. We know that, in parallel 
 with this Bill, the Government's Green Paper contains other ideas such as the provision of a lifetime money-back guarantee. In other words, people would be able to buy with their annuity a guarantee that, when they die, the money will go to their dependents. That would deal with many of the problems associated with annuities. My understanding of the Government's response is that they wish to go only half way. They have conceded the principle of allowing people to buy a money-back guarantee, but will not allow that for those over the age of 75, which reduces much of its value. 
 In the Minister's response, will he say why the Government are proceeding in a half-hearted way? If they embrace the concept fully—it is a proposal that has been made by the insurance industry—that would get around many of the complexities that the Bill poses, and deal with one of the central objections to annuities.

Howard Flight: First, I reiterate the point that 14 years ago Canada moved to a similar, but simpler system than the Bill provides for. Before that, Canada had money-purchase individual pension saving vehicles similar to stakeholder pensions, but they never really got off the ground. When the Canadian Government changed the rules to enable people to have their own pension retirement pot and do what they wanted with the money, the participation rate rose to about 70 per cent. That is a major illustration of how having to sink one's savings into an annuity is a real big turn-off.
 Secondly, it seems to me that the Government are moving backwards and forwards, crawling their way along. The Green Paper recommends the abolition of having to buy an annuity at 75. It is clear; the proposal states that one should be able to continue to have the money in a fund—however one wishes to look after it—but states that, because of the extraordinary archaic obsession of the Treasury, that when you die, the money has to go back to the pension provider, whoever that may be. That is an unclear concept because, in practice, it would mean that some pension providers might give the money to the family, and some might keep it. 
 We have heard from hon. Members a broad acceptance of the concept of a standard pension exit charge taxation to address this fundamental issue. If one combined that with what is in the Green Paper, one would get pretty near what we are aiming for. Let us get on with it please.

John Healey: I recognise the urgency with which the hon. Gentleman is pressing the Government. I also recognise how long he has been championing this matter. For a decade, he has advocated the abolition of the obligation to buy an annuity. He has worked in this area in his professional experience, so I understand his passion. I say to him and to the hon. Member for Twickenham that they will have to wait until the autumn, when we hope to publish the proposals, following consultation. The hon. Member for Twickenham should wait until then before dismissing the Government's plans as half-hearted. I thank the
 hon. and learned Member for Harborough for his comments. I take note of all contributions. My hon. Friend the Financial Secretary will also take note of those contributions in the wider consideration that we are giving to these issues.
 The debate has exemplified some of the arguments, and I hope that hon. Members feel that they have nudged the arguments along. However, despite the soothing tones of the hon. and learned Member for Harborough, I cannot support the clause. 
 Question put, That the clause, as amended, stand part of the Bill:—
The Committee divided: Ayes 10, Noes 2.

Question accordingly agreed to. 
 Clause 1, as amended, ordered to stand part of the Bill.

Peter Atkinson: Order. We are likely to have a Division shortly; at that point I shall adjourn the Committee for half an hour in case there is a second Division or otherwise so that we can have a cup of tea. We shall return 30 minutes after we adjourn. Since this is a private Member's Bill, there are no Whips here. I remind hon. Members that the quorum of the Committee is six, which includes me, so if, as we get towards the end of the Bill, Members do not come back, the Committee may have to stand adjourned.Clause 2 Minimum Retirement Income

Clause 2 - Minimum Retirement Income

Edward Garnier: I beg to move amendment No. 23, in
clause 2, page 2, line 41, after 'year', insert 'following consultation'.

Peter Atkinson: With this it will be convenient to discuss amendment No. 42, in
clause 2, page 2, line 41, leave out from 'order' to end of line 44 and insert— 
 '( ) An order under this section shall, in respect of each financial year after that in which this Act comes into force, be made on or before 31st January preceding the year in question.'.

Edward Garnier: I want to introduce the amendment briefly, not because of what you just said, Mr. Atkinson, but in any event. I want also to soothe the Minister yet further by saying that I do not wholly object to his amendment No. 42. I want the Chancellor to work out what is best from the point of view of both the public purse and the public, in so far as those two concepts diverge, when it comes to setting the minimum retirement income.
 I am not in a position as an Opposition Member on the Back Benches to work out what would be an appropriate level for the minimum income in years to come—that would be true were I on the Front 
 Bench, too. Only the Chancellor, as the custodian of the economy, can properly do that, but he will take advice from within the Treasury, and no doubt from outside it, about where best to pitch the figure for each year. I trust that one way or the other the Committee can come to a resolution on both amendments; that is, that the Chancellor, following consultation, should make the order, or that there should be deletion and replacement with the words that the Government propose in their amendment No. 42. 
 Frankly, I am not going to go to the cross for either amendment; all I ask is for the Minister to accept the good faith in which I propose the amendment, as I want to hand not only to the current Chancellor but to successive Chancellors the power and the discretion to set the minimum income.

John Healey: First, I am grateful for the hon. and learned Gentleman's comments on amendment No. 42, which is designed to make a flawed Bill a little less flawed. His amendment relates to a small matter that my hon. Friend the Member for Hendon (Mr. Dismore) in particular criticised in a much wider critique on Second Reading. I am sure that my hon. Friend will welcome the fact that the hon. and learned Gentleman has listened to those comments, taken them on board and produced his amendment. Bearing in mind the official report of our discussions, I want only to ask the hon. and learned Gentleman whether he has a view on whom the Chancellor, in being given the relevant power and responsibility, ought to consult; or is the hon. and learned Gentleman content to leave that entirely up to the Chancellor?

Edward Garnier: I thought that I had made my position generally clear; the Chancellor would take advice from those in the Treasury and those outside it. I cannot be more specific than that. I do not know who will be in post when the Bill comes into force, but I am sure that the Chancellor, even this one, can be canny about working out to whom it would be appropriate to talk.
 Amendment agreed to. 
 Amendment made: No. 42, in 
clause 2, page 2, line 41, leave out from 'order' to end of line 44 and insert— 
 '( ) An order under this section shall, in respect of each financial year after that in which this Act comes into force, be made on or before 31st January preceding the year in question.'.—[John Healey.]
 Clause 2, as amended, ordered to stand part of the Bill.

Clause 3 - Short title and commencement

John Healey: I beg to move amendment No. 43, in
clause 3, page 3, line 6, leave out from '6th April 2005' and insert 
 'such day as the Chancellor the Exchequer may by order made by statutory instrument appoint'.
 I shall briefly explain the reason for the amendment, which may be more significant than it first appears to be. 
 Members of the Committee will know that there is a transitional measure in clause 1 for scheme members who receive scheme benefits by way of income withdrawal when the proposed Act comes into force. The terms of clause 1 give significant scope for avoidance. There is therefore no good reason for fixing the effective date in the Bill. The amendment removes the specified commencement date of 6 April 2005 and instead gives the Chancellor of the Exchequer the power to appoint a commencement date to avoid that danger. I hope that hon. Members will accept the amendment.

Edward Garnier: I do not want to be unduly controversial, but I do not like the Chancellor of the Exchequer having this power, because it looks as if the matter is being put in the bottom drawer. It may take the Chancellor some time to get to that bottom drawer. The whole point of putting a named date in subsection (2) is to keep the whip dangling over the Government's head. If they have a date to work to, perhaps they will work to it. I appreciate that the Government do not want to be tied down to a particular date, but it is time that they made a move and got on with it.
 Question put, That the amendment be made:—
The Committee divided: Ayes 3, Noes 9.

Question accordingly negatived. 
 Clause 3 ordered to stand part of the Bill. 
 Question proposed, That the Chairman do report the Bill, as amended, to the House.

Edward Garnier: On a point of order, Mr. Atkinson. May I thank you for your brisk and efficient chairmanship? May I also thank the Minister and his hon. Friends, and my hon. Friend the Member for Arundel and South Downs and the hon. Members for Sheffield, Hallam and for Twickenham for their constructive part in today's hearing? I hope that we will have a chance to debate these issues further on Report on 11 July, although that date is not yet certain. In any event, today's sitting has been useful and I hope that the Government have learnt a lesson about the need to deal with this issue as quickly and as effectively as possible.
 Question put and agreed to. 
 Bill, as amended, to be reported. 
 Committee rose at one minute to Four o'clock.